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Profiting from technological capabilities: Technology commercialization strategy in a dynamic context

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  • Simon Wakeman

    ()
    (ESMT European School of Management and Technology)

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    Abstract

    This paper analyzes the technology commercialization strategy of an innovating firm when the incumbent firms possess specialized commercialization capabilities. The predominant framework says that if the innovation is protected by a tight appropriability regime the optimal strategy is to license the innovation to an incumbent firm. Using a game-theoretic model of the technology commercialization process, this paper shows that if the innovating firm has specialized technological capabilities and the ability to learn from its experience in the commercialization process, its optimal strategy may-under certain conditions-be to commercialize alone or to pursue a hybrid whereby it licenses the innovation but retains the rights to participate in the commercialization process. The paper then uses the conditions derived from the model to explain the pattern of technology commercialization arrangements pursued by biotech firms attempting to commercialize 1590 identifiable products in the pharmaceutical industry between 1978 and 2008. The results show that a firm is significantly more likely to use the hybrid strategy when there are more firms competing to license the innovation, when there is a higher probability of commercializing a subsequent product in the same product field in future, and when it is in a stronger financial position.

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    File URL: http://static.esmt.org/publications/workingpapers/ESMT-08-008_R2.pdf
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    Bibliographic Info

    Paper provided by ESMT European School of Management and Technology in its series ESMT Research Working Papers with number ESMT-08-008 (R2).

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    Length: 52 pages
    Date of creation: 24 Oct 2008
    Date of revision: 08 Jul 2009
    Handle: RePEc:esm:wpaper:esmt-08-008

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    Keywords: technology commercialization; biotech; applied game theory; biotechnology; capabilites; innovation; entrepreneurship;

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    1. Van de Ven, Wynand P. M. M. & Van Praag, Bernard M. S., 1981. "The demand for deductibles in private health insurance : A probit model with sample selection," Journal of Econometrics, Elsevier, Elsevier, vol. 17(2), pages 229-252, November.
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    3. Robert M. Grant & Charles Baden-Fuller, 2004. "A Knowledge Accessing Theory of Strategic Alliances," Journal of Management Studies, Wiley Blackwell, Wiley Blackwell, vol. 41(1), pages 61-84, 01.
    4. Josh Lerner & Alexander Tsai, 2000. "Do Equity Financing Cycles Matter? Evidence from Biotechnology Alliances," NBER Working Papers 7464, National Bureau of Economic Research, Inc.
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    6. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, Econometric Society, vol. 47(1), pages 153-61, January.
    7. Ashish Arora & Robert P. Merges, 2004. "Specialized supply firms, property rights and firm boundaries," Industrial and Corporate Change, Oxford University Press, vol. 13(3), pages 451-475, June.
    8. Gans, Joshua S. & Stern, Scott, 2003. "The product market and the market for "ideas": commercialization strategies for technology entrepreneurs," Research Policy, Elsevier, Elsevier, vol. 32(2), pages 333-350, February.
    9. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 1185-1209, November.
    10. Ilya Segal & Michael D. Whinston, 2007. "Antitrust in Innovative Industries," American Economic Review, American Economic Association, American Economic Association, vol. 97(5), pages 1703-1730, December.
    11. Aghion, Philippe & Tirole, Jean, 1994. "On the Management of Innovation," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 36, Institut d'Économie Industrielle (IDEI), Toulouse.
    12. Higgins, Matthew J., 2007. "The allocation of control rights in pharmaceutical alliances," Journal of Corporate Finance, Elsevier, Elsevier, vol. 13(1), pages 58-75, March.
    13. Pisano, Gary P, 1989. "Using Equity Participation to Support Exchange: Evidence from the Biotechnology Industry," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 5(1), pages 109-26, Spring.
    14. Teece, David J., 1986. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," Research Policy, Elsevier, Elsevier, vol. 15(6), pages 285-305, December.
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